Contracts for Difference (Miscellaneous Amendments) Regulations 2022

Lord Teverson Excerpts

Tuesday 17th May 2022 Grand Committee

[Baroness McIntosh of Pickering (Con)]

My Lords, I thank my noble friend and congratulate him on presenting the regulations to us this afternoon. He will be aware that there were great hopes, particularly off the Yorkshire and Humber coast, that facilities had been identified which would be appropriate for exactly the type of venture that is set out in the regulations before us today. So I welcome the regulations, but is my noble friend able to confirm that he believes that the take-up on the proposals for carbon capture and storage will increase and multiply because of the content of the regulations before us this afternoon?

Separately—he might think I am going off-piste here, and I probably am—can my noble friend explain something? If I understood it correctly, one of the difficulties we have with wholesale gas prices impacting the UK as they have—though perhaps not as badly as in other European countries, which rely heavily on Russia—is that we have gas storage of only 60 days, which is about two months. That strikes me as being terribly low. I do not suppose that that would benefit from these proposals, but I would like to understand why, historically, we seem to have a lower storage capacity than other European countries. Is that something that the Government might be minded to look at that?

The only other point I wish to make, which I am sure my noble friend is very familiar with, is the point raised in the 37th report of the Secondary Legislation Scrutiny Committee, which I find myself in some sympathy with. Even though I am a lawyer by training and spent about nine months of my training going through all the scientific evidence—produced mostly by scientists rather than lawyers—on whether fluoride was a carcinogen, I find that even these small regulations before us this afternoon are full of jargon. There is a request in paragraphs 22 and 23 of the 37th report that the Explanatory Memorandum perhaps be revised to enable us humble Members of the House to understand better its contents. Can my noble friend simply confirm that that is the case? If that could happen in advance next time so that, when we see the Explanatory Memorandum we are better able to follow it, it would be very welcome indeed.

I thank my noble friend and his department for all they are doing at this particularly difficult time, and I give a warm welcome to the regulations this afternoon.

[Lord Teverson (LD)]

My Lords, in fact we should congratulate the Minister, because the officials have rewritten the Explanatory Memorandum. There are two versions of it on the website, and one of them explains all the acronyms in a footnote. Strangely enough, I knew all the ones they listed, but I was unclear about a couple in the rest of the report. It is not there—it is on the website.

First, although the Climate Change Committee and the Government are right that carbon capture and storage technology is needed, exactly as the Minister said, we also need a slightly cautionary note about it. In a way, certainly in terms of power generation, it is a far less efficient way of producing power; it takes energy to produce it, as we are all aware. An opportunity to produce power without CCS is obviously better, although I entirely understand that industrial processes are different.

The other thing I am always cautious about—I know that most of the basis is putting it back under the sea or wherever—is the element of putting pollution back under the carpet to a degree. I am not saying that it is unsafe or anything, but it is always better if we can avoid that.

On the propositions here, having read the Explanatory Memorandum, I understand that the fact that this can include retrofitted power stations is unclear. Clearly, it is much better in all sorts of ways to have retrofitted ones than have to build new ones, although I suspect whether that is economically possible or right depends on whether the particular gas facility—I presume it would be gas; I suppose it could technically be coal—has been future-proofed in terms of utilisation. That is good.

What really concerns me is that the SI says you do not have to use a pipeline. The amount of carbon dioxide coming out of a power generation station of any size will be quite substantial; the thought of trucks in urban areas moving carbon dioxide, maybe over many miles, across the surface outside a pipeline seems quite a challenge in terms of noise, congestion and carbon footprint—depending on how that transport works. I would be very interested to understand the logic behind that from the Minister. As I understand it, this will primarily be in clusters, which it seems to me will always need to be pipeline-based to get the carbon dioxide out to a storage facility, whether it is undersea or wherever. I would be very interested in the Government’s view of why this is necessary, what they expect and whether there will be any limits on how this transportation takes place. Clearly, pipelines must be absolutely right for this rather than some sort of other surface transport.

The SI also goes through the payment mechanisms. I am interested in the Explanatory Memorandum here, particularly on the availability payment. Paragraph 7.13 says that this is a payment for availability to dispatch electricity, and performance. I thought we had a thing called the capacity market to do that. Why do we need this? Does it not compete with the capacity market? I do not understand what the difference is or why we are inventing another load of systems for this. On the variable payment, again, would a strike price not work better? I understand that those options are still available, despite these amendments.

Then we come to the merit order, which says “We will compensate the price to make sure that we have non-carbon intensive gas stations producing electricity ahead of conventional ones”, which is clearly absolutely right for decarbonisation, but it has a cost. The economic analysis in the paper says there is no cost to the private sector, which I guess is right, but I would like to understand what the size of the cost to the taxpayer of all this is expected to be.

Lastly, I would be interested in the government estimate of the extra cost of producing CCS electricity through a gas station compared to conventional generation. The department must have done this to work out roughly what the public expenditure requirements might be.